Legalize, tax marijuana to fill budget gap

By MAUREEN BROWN, ATTORNEY

Published 10:00 pm, Wednesday, August 13, 2003

As every state faces a budget crisis and our Legislature repeals voter-approved initiatives to fill the budget gap, creative solutions are needed. A lucrative idea yet to be proposed is to legalize and tax marijuana.

While seemingly a radical leftist idea, legalizing and taxing marijuana would not only help close the hole in the budget but also provide much-needed jobs and help to farmers. Domestically grown marijuana is the second largest cash crop in the United States, behind only corn.

The end to marijuana prohibition would merely require the rescheduling of marijuana from a Schedule I to a non-scheduled drug, similar to alcohol, nicotine, caffeine or ibuprofen. Once the federal government had decriminalized marijuana, all states would have the option of legalizing it. States could either be "smoky" or "clear," similar to "wet" and "dry" locales after Prohibition ended in the 1930s. In addition, counties or municipalities could be "clear" jurisdictions if they so chose.

A model for how marijuana would be sold and how the taxes would be collected is the state liquor system. Here, liquor may be sold only by the bottle in state-run liquor stores. There is an excise tax on the liquor and a sales tax is charged to all non-industry customers.

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Similarly, marijuana would only be sold in state-run stores, possibly in current liquor stores. Ordinary customers could pay a variety of taxes on the marijuana bought there, including a federal excise tax, a state excise tax and a sales tax. Customers also would have the option of going to marijuana bars, possibly including current alcohol bars, to buy marijuana to be smoked there.

By legalizing this drug, the government would save the money it currently spends fighting the war on marijuana. The federal government spends $19.2 billion every year in fighting the war on drugs; state governments combined spend $77.8 billion every year in this effort. Conservatively estimated, 20 percent of the government's war on drugs expenditures goes toward marijuana. Assuming that Washington state spends one-fiftieth of the states' combined expenditure, this means we spend somewhere around $300 million to fight marijuana.

The government could also raise revenues by placing an excise tax on marijuana, much like the excise taxes imposed on alcohol and cigarettes. A federal excise tax of 6 percent on the $11 billion U.S. consumers spend on marijuana every year would produce $660 million for the federal government. Similarly, Washington could impose excise and sales taxes on marijuana. If Washingtonians smoke one-fiftieth of the total marijuana smoked in the United States, we consume $220 million worth of marijuana every year. A 6 percent excise tax would bring in $13.2 million every year for the state. The average state and local sales tax is around 8 percent, which would bring in another $17 million every year.

Yet another source of revenue would be from taxing all the income derived from the marijuana industry that currently goes unreported. In a nation with legalized marijuana, many workers would earn income from the marijuana industry, among them agricultural workers, farmers, factory workers, salespeople and CEOs.

Assuming that the $11 billion gross sales of marijuana would generate half that much in taxable income, the government could tax an additional $5.5 billion of income. The federal income tax rate varies due to taxable income and deductions, but assuming a 20 percent average tax rate and $5.5 billion in marijuana income, the federal government could collect $1.1 billion in income taxes every year.

In addition, the federal government could bring in $382 million in FICA taxes. Forty-one states have an income tax. In states with income taxes, they range from 0.36 percent in Iowa's lowest bracket to 25 percent in Rhode Island's highest bracket. Assuming an average tax rate of 5 percent on income from the marijuana industry, the states combined would bring in $275 million. Washington state does not have a state income tax, so it would not gain any extra revenue when the income from marijuana became taxable.

Adding up all the numbers, the federal government would have additional revenues of $6 billion a year and the states an additional $17 billion for a combined total of $23 billion a year. This money could pay for the entire food stamp program, provide a tax rebate of approximately $150 per taxpayer per year or pay for a war with an axis of evil regime. Washington state's portion of the marijuana pie would be $330 million; that might not be enough to solve our next budget crisis, but it is a start.